0% APR: 3 Things You Need to Know

Charlotte Miller

Borrowing money costs money — usually — unless you manage to snag a 0% APR on your personal loan, line of credit, or car financing.

As you might imagine, a no-cost offer on your next loan can save you a lot of money, making it a tantalizing deal if you can manage to find it.

What is 0% APR?

APR is short for annual percentage rate. This number shows you the cost of borrowing over a year, as expressed by a percentage.  It incorporates any fee applied to your account, like interest and finance charges.

When your APR is zero, that means you don’t pay anything back but your principal — no interest, no finance charges, and no fees.

1. 0% APR Can Be Hard to Get

Think of 0% APR as the unicorn of personal finances. It’s rare and typically offered in unique situations. Most banks, online lenders, and credit unions apply some charges to their financial products. They want to make money on the funds they lend, after all.

In many cases, this envious APR is only available to people with amazing credit. Borrowers with lower scores may still qualify for a line of credit or personal loan, but they may have to pay interest and finance charges.

If you don’t know your credit score or don’t know how it’s calculated, take some time to check in with this number. It’s an important metric any time you borrow, regardless of your interest rate.

0% APR may also only be available in special circumstances, like when a car dealership is trying to move overstocked, slow-selling models. In light of the current issues with the car industry, zero percent financing may not be possible.

2. It Might Be Limited

Zero percent financing may be promotional, even with good credit. In other words, your 0% APR may only be available for the first six, 12, or 18 months after you open your account. After this time lapses, your APR will revert to your lender’s standard rates.

In this case, it’s important you pay close attention to this term, especially when it comes to credit cards or lines of credit. You may want to alter the way you use these accounts after your introductory period ends.

3. 0% APR Has Conditions

Lastly, zero percent financing has its limitations. Sometimes, it doesn’t apply to everything. You might earn 0% APR on basic credit purchases, but you may have to pay interest and fees on cash advances, transfers, and other charges.

Your 0% APR may also be contingent on whether you pay your bills on time. If your account becomes delinquent, your lender might revoke your 0% APR and apply their standard rates, plus late fines. Your late payments may even affect your credit score, damaging it if your lender shares your delinquencies with the major credit bureaus.

Always pay off your balance as quickly as possible to avoid these consequences. If you can’t bring your balance to zero, pay as much as you can and cover your minimum payment to avoid late fines. You can even set up automatic payments that cover your minimum payment if you ever forget this important task.

And there you have it — three things you probably didn’t know about 0% APR. While zero percentage financing would be nice, it’s not always possible, so don’t feel bad if you can’t find it or qualify for it.